The China Insurance Regulatory Commission (CIRC) issued the Circular on Issues relating to Investment of Insurance Funds in Equity and Real Estate (the 2012 Circular) on 16 July 2012 and has issued two other rules, all of which facilitate a more diversified range of investment options for insurance companies.
The 2012 Circular amends certain provisions of the Interim Measures on Investment of Insurance Funds in Equity (Equity Regulations) and the Interim Measures on Investment of Insurance Funds in Real Estate (Real Estate Regulations), promulgated by CIRC in 2010. For more background information, please refer to our Legal Update: CIRC Permits Insurance Companies to Diversify Their Investments into Private Equity and Real Estate Sectors.
Major Changes under the 2012 Circular
The following table shows the changes introduced by the 2012 Circular.
Click here to view table.
The 2012 Circular also significantly lowers the qualification requirements for insurance companies that seek to make equity or real estate investments by:
- removing the requirement that an insurance company must be profitable in the preceding year;
- lowering the solvency adequacy requirement from 150% to 120%; and
- changing the asset requirement to RMB 100 million in net assets for the preceding year (as compared to RMB 1 billion in net assets under the Equity Regulations, and RMB 100 million under the Real Estate Regulations).
The 2012 Circular has the effect of facilitating equity and real estate investments by insurance companies and encouraging insurance companies, as institutional investors, to participate in private equity funds, which is very important for the development of the private fund industry in China. Meanwhile, the permitted equity investment industry sectors also align with the government’s desire to develop certain strategic industries.
Other New CIRC Rules
The CIRC also issued two other rules in July 2012: the Interim Measures on the Administration of Entrusted Investments of Insurance Funds, which permits insurance companies to retain external asset managers to manage investments on behalf of insurance companies; and the Interim Measures on Investment in Bonds of Insurance Funds, which reduces restrictions on investments by insurance companies in bonds.
These new rules represent a concerted effort of the CIRC to remove restrictions on investments by insurance companies and to diversify the range of investment options.